Obama Unveils Race for School Billions

President Obama today announced the steps states must take to compete for their cut of an unprecedented $4.35 billion in discretionary federal stimulus funding for education.

"This is one of the largest investments in education reform in American history," Obama said at the Department of Education this afternoon. "And rather than divvying it up and handing it out, we are letting states and school districts compete for it. That's how we can incentivise excellence and spur reform and launch a race to the top in America's public schools. That race starts today."

The controversial "Race to the Top" program offers one of the first glimpses into how far the Obama administration is willing to go to create reform.

The program centers of four basic "assurances" that states must meet to qualify for a piece of the pie -- turning around low-performing schools, in part by expanding charter schools; enacting rigorous, common academic standards; improving teacher quality and beefing up state data systems.

States will be judged based on their progress in each of the four areas and -- given the way several states have been using education stimulus money to fill budget gaps rather than to innovate -- it is clear that not all states will be awarded funding.

"I'm issuing a challenge to our nation's governors, to school boards and principals and teachers, to businesses and non-for-profits, to parents and students: if you set and enforce rigorous and challenging standards and assessments; if you put outstanding teachers at the front of the classroom; if you turn around failing schools -- your state can win a Race to the Top grant that will not only help students out-compete workers around the world, but let them fulfill their God-given potential," Obama said.

In an exclusive interview with ABC News on Thursday, Education Secretary Arne Duncan explained the dire need for reform.

"We have as a country, I think, have lost our way educationally. We have to educate our way to a better economy. To me, education is the civil rights issue of our generation," he said.

"This is a fight for social justice," he added, "and we want to work with those states that are literally going to lead the country where we need to go."

With more discretionary money at his disposal than all education secretaries in the last three decades combined, and a close personal ties to the president, Duncan may be the most powerful education secretary to date.

Through "Race to the Top," Duncan hopes to prop up states that innovate -- and inspire those that have not. Duncan admitted not all states will qualify, but said that a competitive spirit will drive reform. In this race, there will be clear winners and losers.

"I think there'll be tremendous pressure on states, state legislatures where things aren't happening, by parents saying exactly that: 'Our children deserve a slice of the pie, and we want that pressure,'" Duncan said.

Winners And Losers

"This isn't about winners and losers," Duncan said. "This is about challenging the status quo as a country, getting dramatically better and giving every child in this country a chance they desperately need to have a great, great quality education."

Duncan admitted he worries about the students who may suffer because their states will not adopt his requirements, and hopes that the grants will serve as a large incentive for reform.

"We're going to do this in two rounds so districts that aren't doing the right things, that aren't serious about reform, will have a chance to come back," Duncan said. "This is not a federal mandate, this is really just an incentive. The first round of applications will be accepted later this year. A second round will come next spring.

"You'll see some folks who will be sort of business-as-usual and not challenge the status quo," he added, "and you'll see other places where they're really willing to innovate, really willing to push the envelope and get dramatically better -- and that's who we want to invest in."

Some, however, claim that the program is not using nearly enough money to create the kind of reform that this administration is hoping to see.

"It's $5 billion, which sounds like a whole lot of money," the American Enterprise Institute's Andrew Smarick said. "There's about $100 billion in the whole stimulus plan for education. This is just a small chunk, so we really have to manage our expectations about what it's going to be able to accomplish."

Smarick voiced concerns that states ultimately may do what they wish with the one-time cash infusion.

"There is this concern that maybe a state gets $200 million and then, at the end of a year or two, they have nothing to show for it other than preserving jobs and programs," he said. "But this is a problem when you give away big sums of money and just give it to states for things that they promise to do."

Duncan did not offer clear specifics on how the Department of Education would monitor how the money was being spent, but promised "unparalleled transparency."

"We want to work with these states on a forward-going basis to make sure we're all learning from each other," he said. "I'm sure states will make some mistakes. This won't happen perfectly. But there's going to be a lot more good that can come out of this."

Linking Teacher Pay to Student Performance

Despite the many challenges of administering these grants, the Obama administration is sending a clear message to America's teachers: Embrace merit-based pay or risk losing out on millions of dollars of stimulus money.

Long opposed by teachers' unions, the application requires educators to be evaluated by the achievement of their students and calls on states to provide opportunities for effective teachers to receive additional compensation. The Race to the Top also challenges the tenure system by encouraging states to fire under-performing tenured teachers.

Four states ? Wisconsin, Nevada, New York and Colorado ? are already out of the running for the first round of grant applications because they have legal barriers that prevent linking student achievement to teacher evaluations.

"It's not just what you're doing, it's how you do it that's so important," said Duncan, who was booed earlier this month by teacher unions when he spoke out in favor of merit-based pay. "We have to reward excellence. I don't know why in education we've been scared of that, [why] somehow we've been scared to talk about how much great teaching matters, great principals matter."

By linking pay to performance, many fear that the best teachers will be encouraged to teach at the better schools. Duncan, however, disagreed.

"As we create these programs, you can create strong incentives for the best teachers and principals to go into the toughest of communities, the hard-to-serve communities," he said. "And you also need to put -- and this is very important -- you're not just rewarding absolute test scores, what you really have to reward is growth, gain, how much are students improving every year. And if you could do those things, you create the right kind of incentives."

Encouraging Charter Schools

The Race to the Top also gives charter schools a clear seat at the table. To compete for the Race to the Top, states must not place limits on the number of charter schools.

Duncan explained his interest in this often controversial type of school system.

"I'm not a fan of charter schools," he said. "I'm a fan of good charter schools, and I'm a fan of innovation. And great charter schools around the country are helping to lead the charge of dramatically closing the achievement gap.

"We need to be very, very clear on charters," he added. "It's not just letting 1,000 flowers bloom. We should only be picking the best of the best, those that we select after [a] very vigorous and thorough selection process.

"We need to give them two things," he continued. "We need to give them real autonomy. These are, by definition, education innovators. They want [to] challenge the status quo. They have the vision. We want to give them the room to operate and free them from bureaucracy. We also have to pair that with accountability."

Charter Schools Will Be Held to Account

The Race to the Top encourages states to use these autonomous institutions to turn-around low-performing schools. Duncan, however, reiterated his belief that charters are not an exception to the rule.

"If you allow third-rate charters to continue to operate, you really endanger a very, very significant education movement in our country," said Duncan, who closed down three under-performing charter schools when he led Chicago's schools. "So this is not just invest wily nilly, let 1,000 new schools open. Let's invest in those charters that have proven ability to dramatically improve student achievement."

Duncan's Personal Ties to Obama

Duncan has a long, personal history with President Obama. The two regularly play basketball together -- a passion from Duncan's early days as a professional basketball player in Australia.

Duncan first befriended Craig Robinson, Michelle Obama's brother, before becoming friends with the future president. The two later worked together in Chicago, when Obama served in the state legislature and Duncan served as Chicago schools chief.

Duncan eventually became Obama's education advisor on the campaign trail before following the president to Washington.

They may be close friends but, on or off the basketball court, Duncan said he has no problem challenging his boss.

"I don't at all, and we are playing [basketball] against each other, trying to kill each other," he said, laughing. "What we have always had is just a really honest relationship. I'll challenge him. He'll challenge me. Luckily, we see the world in very similar ways."

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